In 2022, 128 million tourists flocked to the Netherlands, a 27 percent rise compared to 2021 and a solid 3 percent increase on 2019, as average RevPAR grew by 191% year on year. With tourism an important sector for the country accounting for some 4.4 percent of GDP or €90.8 billion in turnover, hotel operators, restaurant owners and central government alike welcomed the rebound. Yet limited land and significant pressures on the Netherlands’ residential stock have made tourism a double-edged sword in the eyes of its legislators, complicating the outlook for hospitality investors and creating a political stand-off in key, desirable locations.
The density of Europe’s mature cities is nothing new, but Dutch authorities, particularly in Amsterdam, are now targeting the country’s conspicuous hospitality sector as the country’s housing crisis grows. This matters for investors scrutinising the Netherlands’ hotel markets, affirms Jurrian Dompeling, executive vice president, hotels & hospitality capital markets at JLL. “Developing new hotels in central Amsterdam has been virtually impossible since 2017, with no new licenses being granted. We’re now starting to see this trend replicated in The Hague and round the country’s airports. While the legislation is being imposed for different reasons, the outcome is the same for potential developers,” he says.
Restrictive policies
One major motivation for these limits is to “check further pressure on the liveability of cities”, Dompeling notes. Regulations over new holiday lets are tighter than ever to protect the country’s stretched residential markets, while municipal authorities in Amsterdam are now poised to restrict visitor numbers. Amsterdam registered some 18 million overnights in 2022, a matter of considerable relief to its hotel and restaurant owners, after the difficult years of 2020 and 2021, when the city was down some €16 billion in tourist revenues, according to ABN AMRO data. Tourism in the city accounts for around 77,000 jobs, some 12 percent of the workforce, says the Central Bureau of Statistics.
Yet 18 million is a talismanic figure for city leaders. It’s the threshold at which the council actives “restrictive policy changes”, with the maximum tourist capacity of the city defined as 22 million. Forecasts expect this could be breached by the end of 2024 if limits aren’t applied. To date, the city has moved its cruise terminal towards its Western Harbour Docks and raised the tourist tax by 30 percent, provoking clashes with local hotel owners.
Complex as the scenario looks to outsiders, Dompeling suggests that the outlook is largely positive for hotel investors in the city. “Despite the development moratorium in central Amsterdam, there are still plenty of plots around the city – particularly to the north – which are available. But even more importantly, the high barriers to entry act as a protective mechanism for hotel owners. There’s an opportunity for those assets to enjoy revenue growth.”
Limited stock is already signalling RevPAR increases, with Amsterdam registering a 300 percent uplift in its revenue per available room (RevPAR) to €102 in 2022, year on year. In the first half of 2023, RevPAR has grown again by 58% to €132, according to JLL data. Meanwhile, although cities like London, Paris and Rome are pretty much year-round tourist destinations, Amsterdam is still catching up in this area – but the growing appetite for low season travel should change that.
Exciting projects
“There are also exciting projects springing up in a number of regional locations,” Dompeling adds. “Rotterdam, The Hague, Utrecht, even Maastricht, Groningen and Arnhem are also registering tourism growth.” Furthermore, the visitor profile continues to expand. While Dutch tourism has traditionally been dominated by domestic travellers, plus German and Belgian tourists, 2022 registered double-the-previous numbers from the UK, Australia, and the US.
Compared to 2022, when a number of key hotel assets changed hands, 2023 has been marked by a relatively slow transactions market to date. Like the rest of the commercial real estate industry, the high cost of finance and a sense that the markets are still in price discovery have affected the desire to do deals. But Dompeling identifies evolving dynamics which could change all that.
“In the years before Covid, there was a lot of transactions activity in the hotels space in the Netherlands,” he says. “During the pandemic years this was somewhat muted however, but not due to a lack of investor appetite. There just wasn’t a lot of pressure to sell for many groups owing to strong government support and collaborative lenders, so the bid-ask spreads remained wide. In 2022, trading performance started to significantly recover with some major deals taking place.” In 2022, some €400 million of deals were registered in Amsterdam alone, including that of the QO Amsterdam, The Hoxton Amsterdam, Mercure Amsterdam Canal District, and Sofitel Legend The Grand. The sale of EasyHotel Benelux platform also notched up €145 million.
Deals pipeline
The second half of 2023 may well see more deals happen, as pressures on owners increase. “End of fund lifes and debt maturities could prompt sales,” Dompeling says. “We’re on the verge of closing two deals, and have another five deals in the market or to be launched to market before the end of the year.” Repricing is starting to take hold, and as cap rates move out, the market is likely to settle at values which are “acceptable” to both buyer and seller. “I don’t think the discounts will be as severe as in other asset classes, such as offices, due to the sector’s performance,” he notes. “However, the highest pressure will be on full service and mid-market hotels, those with a MICE focus, in fact, any properties that require strong capital expenditure.”
In terms of investor types targeting the market, “we see a lot of private equity on the sidelines, and we expect these groups to be active on both the equity and the debt side. Many private equity funds have amassed considerable firepower”, Dompeling notes. He also identifies family offices and high net worth individuals waiting to pounce. “Asian and Middle Eastern capital is back in the market is a big way and focusing on luxury and core opportunities. Although institutional capital is present to a lesser extent, other capital sources are making up for that.” And with both luxury and budget hotels set to continue on the path of outperformance, the outlook for the Dutch market looks bright.